How Corporate Cost Cutting Could Impact Site Selection

When companies look to cut costs during a recession, real estate is often one of the first places they look.

But reducing an office footprint isn’t the only way to pare down lease costs. In a recent report entitled, “Strategic Cost Considerations for Corporate Employers,” CBRE contends that moving jobs to lower-cost locations creates a much greater return on investment (ROI) than just cutting office space over the long term.

Labor costs make up as much as 85% of a company’s operating costs. So, relocating offices from high-cost areas to emerging hubs can produce massive cost savings. For instance, moving software engineering positions from San Francisco to an emerging market like New Orleans saves $24,000 per job per year, according to CBRE. Moving 250 of those positions saves $6 million per year or $60 million over 10 years.

“Bearing in mind that savings from reduced labor costs are much greater than from reduced real estate costs, many companies are evaluating how to reposition their talent portfolio,” CBRE said in the report. “While there may be lower labor costs across most if not all markets, some will be better positioned than others due to their unique industry make-up, cost of living and minimum wage requirements.”

Traditionally companies may have avoided moves from expensive markets for fear that they couldn’t find enough qualified, talented workers. Still, CBRE thinks they might be pleasantly surprised by a greater availability of talent. Additionally, the emergence of remote working during the pandemic could create new migration patterns to these lower-cost metros.

If a company wants to reduce costs, CBRE suggests that it would “be smart to make a clean assessment” of its location strategy. In relocating, it can achieve cost savings while also potentially having a deeper talent pool due to market disruption and new migration patterns. These companies could also enjoy lower costs and higher talent retention due to less local competition.

In the hot life sciences sector, many companies are already looking beyond the traditional, costly hubs to emerging cities.

“Major metropolitan cities like Boston, San Francisco, Seattle and San Diego that have been long-established life science hubs are expensive to operate in,” Mark Hefner, CEO and shareholder of MGO Realty Advisors, told GlobeSt.com in an earlier interview. “Everything from real estate to cost of living in these cities is expensive. Now, with the Covid-19 crisis, companies are facing tremendous budget constraints and increasing pressures on their bottom line, forcing them to reconsider where they are located.”